Tonkon Torp Helps Commercial Real Estate Owner With Critical Sale Hurdle Through Defeasance

Tonkon Torp’s timely and experienced loan defeasance work recently permitted a shopping center owner to realize the profitable sale of that real estate in a transaction that initially appeared to be financially infeasible. 


The owner wished to accept a favorable purchase offer from a third party, but was constrained by the terms of his existing loan on the shopping center. The loan, secured by the property, had a prohibitive prepayment provision. 


Real estate attorney Kimberlee Stafford facilitated and closed a loan defeasance transaction on behalf of the owner. The real estate loan collateral was swapped for government securities of sufficient value to cover the remaining loan servicing debt. With the real estate no longer held as collateral, the property sale could go through. Timing of such transactions is critical. The property sale and the defeasance must occur at the same time. Stafford negotiated the suite of loan documents and crafted a legal opinion required by the lender in order to go forward with the deal. The transaction costs for the defeasance were much less than the prepayment premium would have been. 


While defeasance transactions are uncommon, they may offer clients a means to sell or refinance real estate that is encumbered by onerous prepayment provisions.  

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